The Tao of Running to the Hills
Other than an old (and good) Iron Maiden song, this seems to be the mantra of most people with any financial exposure to the equity markets lately. Which makes me wonder about the wisdom behind the running. When markets crash like this, should you run? Hold still? Buy?
My own take — and I’m surely no financial expert — is that the time for selling is long past. If anything, it is time to buy. Cautiously, if you are buying individual stocks, and a little less cautiously if you are buying index funds, but still I take it that it is time to buy (averaging in seeming to be the best bet). At heart I’m a bit of a contrarian. When people are screaming for the exits, that’s when it’s time to fight through the crowd to get in.
A friend of mine recently disagreed with me about this, suggesting that this might be good advice in a rational market, but this isn’t a rational market. I think I disagree. Markets, in my opinion, are not rational at all — there’s nothing peculiar about “this time” that makes it different, other than mere scope. I remember hearing the same claim in 2000 — that the tech market “was different” and there was no bubble. There was. I remember hearing it again around 9/11 — that this crash was “different” and changed the markets forever. They were wrong too.
Markets trade a great deal on perception and emotion. In this situation, there’s a perception of perceived financial collapse, or “depression,” so they are running to take money from the market and hide it under the mattress, or at best in CDs. Panic and fear drives price, just as much as in the tech bubble excessive greed and optimism did, in the opposite direction.
But there’s an element of Taoist wisdom that we can apply here. First, that we need to be ready for change. The markets don’t just “go up.” They also go down, and sometimes quickly. The second is that where one opposite becomes more and more prevalent, the other opposite too becomes more and more present in the background. So here, when one opposite is pushed — fear and perceived collapse — another comes into existence, namely opportunity and hope of reconstruction. Where one can see failure all around, the possibiltiies for success start to come into existence as well. One opposite doesn’t exist without the other. The third point is that being successful in the financial markets, I think, requires that one learn to become less “fixated.” If the “Way” or “Tao” is the market itself, then Xunzi has a point — we need to learn to “see all sides”. Instead of seeing just “one corner” (failure), we need to learn to see the many different perspectives and paths at work in any one given situation. To achieve success, we need to recognize failure but at the same time not “get fixated”. We need to be a bit more detached from the “hubbub” and be more sensitive to the changing (and various) dynamics of the Tao, to be open to passively adapting to changing conditions.
Given that perception and emotion is so key, eventually the other opposition pairs (opportunity and success) will become apparent. Emotion will shift over to hope, and the buyers will stream in. After all, a bargain is a bargain, and eventually even the panicked and fearful see that (though some see it too late). Once this happens, and the buying begins, the floor sets in, and the market outlook changes yet again.
And there are, in my opinion, a lot of individual and general bargains out there!